Greg Falesnik - Managing Director, MZ North America Shlomi Cohen - CEO Assaf Cohen - CFO

Mike Latimore - Northland Capital Markets Brian Kinstlinger - Alliance Global Partners Edward Schwartz - Schwartz Investments

Thank you, Operator. Earlier this morning, OTI released financial results for the second quarter ended June 30, 2018.

The release is available on the Investors section of the Company’s website at www.otiglobal.com. Please be advised that certain information discussed in this conference call may contain, express or imply forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal Securities Laws.

Such statements can be identified by the use of terms such as may, will, expect, believe, intend, plan, promising, imminent and other comparable terms. For example, forward-looking statements include statements regarding our expectation to continue growing sales and profitability, to continue to ramp up ATM sales and deployment, expected revenue increases in certain segments, adjusted EBITDA and expected margins and revenues, momentum and growth, initiatives, our expectations regarding future product launches and growth into new markets such as Russia, our expected future deliveries and installed base, and our expectations regarding our outlook and opportunities.

While forward-looking statements reflect good faith, belief and best judgment based on current information, they are not guarantees of future performance or results. They are subject to known and unknown risks and uncertainties, and factors including those detailed from time to time in the Company’s filings, periodic reports, and registration statements filed with the SEC.

OTI assumes no obligation to update any forward-looking statements or information, which speak to as of their respective dates. The full Safe Harbor provisions are set forth in the earnings press release we issued this morning.

OTI’s CEO Shlomi Cohen is your host today and he will introduce the rest of the team joining him on the call. With that I will turn the call over to you, Shlomi.

Thank you, Greg and thank you to everyone joining us on today's call. During the first half of 2018 we have continued to experience strong operational execution in our business.

Evidenced by several purchase orders and contracts in some of our key target markets including Poland, Japan and most recently Russia. These efforts have allowed to grow revenue by 10% in the first half of 2018 and five other conservative quarter of positive adjusted EBITDA which we view as a major accomplishment.

Today the business is stronger position than ever before but before going further I would like to turn the call over to our CFO to walk us through some financials for the second quarter. Assaf?

Thank you, Shlomi. Good morning everyone.

Before the market opened today we issued a financial result of our second quarter and first half ended June 30, 2018 in a press release. A copy of the release is available in the Investor Relations section of our website.

Revenue in the second quarter of 2018 was $6.2 million compared to $6.9 million of revenues for the second quarter of 2017. As we have noted we do experience some lumpiness in our revenues however we expect this to be less of a factor moving forward as we expand geographically and increase the record revenue portion of our businesses, more on this later.

Recurring revenue in the first half of 2018 by 10% to $12 million compared to $11 million in the first half of 2017. Recurring revenue accounting for 24% of total revenues in the first half of 2018 compared to 23% of total revenues in the first half of 2017.

And on an absolute dollar basis recurring revenues increased by 14% to $2.9 million compared to $2.5 million. In the second quarter of 2018 recurring revenues remained flat at 24% of total revenues when compared to the first quarter..

In the second quarter of 2018 retail and mass transit ticketing revenues were $4 million or 66% of sales. Petroleum revenues were $1.7 million or 27% of sales and [indiscernible] revenues were at $440,000 or 7% of sales.

In the first of 2018 retail and mass transit ticketing revenues were $8.6 million or 71% of sales, petroleum revenues were at $2.6 million or 22% of sales and [indiscernible] were $830,000 or 7% of sales. Looking at the second quarter of 2018 the Americas accounted for $2.7 million or 44% of total revenue, Europe accounted for $2.1 million or 35%, Africa accounted for $1.1 million or 18% and APAC accounted for $180,000 or 3%.

In the first half of 2018 the Americas accounted for $5 million or 41% of total revenue, Europe accounted for $3.8 million or 32% Africa accounted for $2 million or 17% and APAC accounted for $1.2 million or 10%. Gross profit for the second quarter of 2018 was $3.2 million or 52% of revenue compared to $3.5 million or 50% of revenue in Q2 2017.

In the first half of 2018, gross profit increased 11% to $6.3 million or 52% of total revenue compared to $5.7 million or 52% of revenues in the same year ago period. In the second quarter of 2018 operating expenses remained flat at $3.3 million when compared to the second quarter of 2017.

Operating expenses in the first half of 2018 were $6.7 million compared to $6.2 million in the same year ago period. Net loss from continuing operation in the second quarter of 2018 was $230,000 or negative $0.01 per share compared to a net income from continuing operation of $86,000 or $0.00 per share in the same year ago period.

Net loss from continuing operation in the first half of 2018 was $525,000 or negative $0.01 per share compared to a net loss from continuing operations of $696,000 or negative $0.02 per share in the same year ago period. Now turning to our non-GAAP results we use adjusted EBITDA from continuing operation and non-GAAP metric as we believe it provides useful indication of our operation results.

Adjusted EBITDA in the second quarter of 2018 or $315,000 compared with an adjusted EBITDA of $536,000 in the same year ago period. The second quarter of 2018 marks our third consecutive quarter of positive EBITDA, after ending the full year of 2017 with positive EBITDA for the first time in the company's 28 year history.

We view this as a significant achievement and positive indication to our focus on higher margin recurring revenues as well as our strength across all business units. Our adjusted EBITDA in the first half of 2018 increased by more than 88% to $429,000 compared to adjusted EBITDA of $227,000 in the same year ago period.

Please see today's earnings release on our website for further details about this non-GAAP metric including a consolidation of adjusted EBITDA to our comparable GAAP results. Now turning through the balance sheet.

Cash and cash equivalents in [indiscernible] investments on June 30 2018 were 8.8 million, this compared with $10.5 million at March 31, 2018 and $10.1 million at December 31, 2017. The decrease in cash during the second quarter of 2018 was mainly due to stock op on inventory for the rest of the year and decreasing the debt balance.

Debt in the second quarter of decreased 10% to $4.5 million compared to $4.9 million in the first quarter of 2018. This completes my financial summary.

For more detailed analysis of our financial results please reference our quarterly report on Form 10Q which we plan to file by August 15, 2018. With that let me now turn the call back to Shlomi.

Thanks, Assaf. As we noted in my opening remarks our businesses remain on track and healthy both operationally and financially.

We also won two awards for our technology from Global Brand Publication that we think are worth mentioning. First OTI PetroSmart, our South Africa fuel management subsidiary was named most innovative technology company in Africa.

Second, OTIEuropa, our European subsidiary was named most integrated cashless payment solution provider in Europe. We view this award as strong affirmation that our customers and partners appreciate the value we are bringing to this massive marketplace.

After achieving the first day of positive adjusted EBITDA in the company's 28 years history while continuing to reduce their -- and grow revenue in '17 our momentum has carried into the first half of 2018. This can be shown by our results in the first half of the year as Assaf discussed.

With revenue increasing 10% and adjusted EBITDA growing 88%. As you may know revenue growth and most specifically revenue growth has been a core area of focus for OTI and its also a major strategic focus for the balance of 2018 and beyond.

We are pleased to announce that our recurring revenue stream accounted for 24% of total revenues in the second quarter and first half of 2018. Our strategy of moving from being a product company to a company that utilizes software and offers complete turkey solution is now paying off.

This strategy was designed to provide us with a stable customer base with predictable revenues at much higher margins making the company significantly more valuable. Now I would like to spend some time discussing the few noteworthy items throughout Q2 in more detail.

In our retail and mass transit segments we have made tremendous progress in several categories. Collectively we presented growth of more than 15% in the first half of 2018.

I am glad to touch on a few noteworthy items here, a key growth area for the company in the automated retail space is ATMs where we continue to increase sales and deployments around the world. In 2017 we delivered over 10,000 systems followed by an order in March where we received a purchase order for an additional 8000 systems for the smart ATM markets.

Japan continues to be a very attractive opportunity for us. In June we received a purchase order for more than 3000 cash less payment system in Japan via our partner billing system corporation.

A leading payment service provider as a result we will recognize a one-time sale followed by a high margin recurring revenue stream over the long term. We expect to deliver these systems by third quarter of 2018 and by that time we will have delivered a total of more than 10,000 advance payment system to Japan to-date.

As you have seen by our announcement, we also continue to gain fraction in Poland, a key market for OTI. In April we secured recurring revenue contract with the Polish national post office to manage [indiscernible] public transportation, smart city card program where we will provide both the payment portion as well as the software in 272 terminals throughout post offices in Warsaw [ph].

In May we signed $500,000 agreement to provide intermediation in the sale of train tickets for trains operated by Mazowieckie Railways in Poland. Using 84 ticket vending machines and finally in June we secured a full reserve contract with the Mazowieckie Railways company to provide and maintain the smart card IT system in support of electronic ticket sales in Poland, largest and most populous province.

We believe many more opportunities exists for penetration into the Polish market. Finally we continue to expand our footprint in Russia, most recently in July we received a purchase order of $500,000 advance contact [indiscernible] to the widespread Russian retail self-service market.

As part of this effort we also applied for the Russia new certification, a payment system established by the Central Bank of Russia. Now let me touch on some of the numbers around why this is so exciting.

The Russian National Payment system created the new payment card in 2014 with a primary objective of being independent of an organization. In 2016 1.76 million Mir cards were issued by 64 banks.

According to the Bank of Russia in September, 2017 30 million Mir cards are planned for release. Unlike international payment cards transactions Mir transactions cannot be suspended and no external financial or governmental factors control the processing.

Over the long term we believe Russia will be a Top 3 strategic market for us as there is a significant potential for growth with the trusted cashless payment provider like OTI. Looking forward into the second half of 2018 and analysing our strong pipeline we are positive and we believe that we will continue to present a healthy growth compared to 2017.

Now before providing my closing remarks I would like to open the lines for Q&A and we will turn it back over to the Operator. Operator, please.

On the PetroSmart business I think you said that was 1.7 million in the quarter I believe, I think it’s a pretty strong result. I guess can you provide any color on kind of what was driving that in the quarter?

I think its all in all first of all as a reminder in 2017 we were presenting 24% royalty over for the PetroSmart and we believe that we will continue with this positive momentum and yes we were having a strong quarter in Q2 and we believe that the second half of this year will be even better, this is our expectation.

And is that across all the kind of OEM customers you have there or is there one particular segment?

Look, the U.S. market is very promising for us and the activities that we are running with our partners overall was part of the reason that in Q2 we were presenting a strong quarter and we strongly believe that the second half of this year we will continue with this positive momentum.

And then on your recurring services growth I think you said it was up 14% in the first half of the year, is that a good way to think about the growth rate of that business or are there other events that would cause that to accelerate or slow?

Okay. Correction the recurring revenue in the first half of this year and also in Q2 was the 24% from our total revenue.

But I think it grew 14% I think then?

No the 14% is in absolute basis from 2.5 to 2.8.

And so is that kind of growth rate about right for this business or are there -- or might as well from that growth rate?

The verticals and the activities that actually supporting Mir card we know is the ticketing for mass transit is the entire payment activity except ATM and of course the fuelling as well.

Okay. And then just in terms of the average selling price for your hardware products, you know how does that trended over the past year, assuming has that been stable, has it been growing more features just kind on average what's the average selling price been trending?

So as you know we are not exposing selling price of our system devices [indiscernible] but I will say the following. The price of the system or device is quite stable and the things that actually change is the package, the feature package that we are injecting into the technology.

Needless to say that we are moving quite fast with more advance technology in most of our systems if you compare with let's say two years ago they are in totally different level. So the price is almost the same but the fact that we are generating recurring revenue and this is actually increase our gross margin in our business.

Shlomi, I know you mentioned Russia you are thinking could grow one of your Top 3 markets longer market but curious if you could rank order by geography how we should be thinking about growth drivers, the rest of this year and into 2019.

Okay we will give you roughly the split that we are having. So still the North America market will continue to be not only this year but also next year as our major revenue generator something around 40% of our revenue is based on the North American market and then the second one, the more at least we can see is coming from Africa.

Its over there mainly the 99% of activities are related to the fuelling business and then we have Japan that as you know we have already delivered more than 10,000 systems and we are very positive regarding this market and Europe is the next revenue generator for us. So this is from geography perspective.

If you're looking from our business division so needless to say that the payment is the biggest one so far and then we are having the fuelling and the ticketing. And if you want I can go further and I can speak about the split inside payment but in general I would say welding [ph] is the biggest one in the payment and then we are having the ATM, Kiosk and the EV chargers, the electric vehicle chargers.

And how should we be thinking about operating expenses trending the rest of this year?

I think we will keep the same level that we were having in H1, there will be minor changes in this respect but I believe that we will keep at the same level.

Okay and the last one for me and I will jump back into queue. I know in the release you mentioned you expect double digit revenue growth year-over-year in Q3 if I recall Q3 of '17 was a fairly depressed revenue level from you.

If we look at Q3 just directionally can you guys show sequential growth?

The answer is positive and you know during '17 I was speaking about lumpiness or bumpiness that we are having in our -- between the quarters. I think that '18 became to be much more stable and this is a result of being a solution company instead of being a product company.

This is a huge change by the way and following the fact that we are actually increasing our recurring revenue and we are generating more recurring revenue from the different activities is actually stabilized activities. I truly believe that Q3 2018 will be much better compared to the other quarters previously, I think about the Q3 in the previous year and this is again a result of stabilizing the activities selling more solutions than product and following that generating more recurring revenue.

10% year-over-year growth is really nice coupled with a modest profitability that the company is consistently being putting up. You're clearly on much stronger financial footing but, can you talk about how much incremental investment you think is needed if any to drive an accelerated growth rate and if there is that you're targeting what types of investments are those, is it sales resources that you lack or is it maybe more R&D.

Where would you need to put more investment into accelerate growth?

Needless to say that its more related to the business side, meaning to sales marketing and business development, those are actually that they let's say the major part where we need to invest more in order to accelerate our business. You mentioned R&D and I will say the following basically we have enough technology in the company, does not mean that we don’t need to invest in technology we are always fine tuning our technology and making sure that it will be that it will fit to the market needs but technology wise I think that we are quite good meaning that we have enough technologies, we know how to develop them and the majority of our R&D activities is more related to upgrade and software upgrade and fine tuning the technology.

We need to invest more in sales marketing and business development and today we are utilizing every available cents in order to do so.

So in response to one of the previous questions you had said that operating expenses wouldn’t change much in the second half of the year. So at what point do you plan to accelerate the investment in sales and marketing?

So at the moment at least we are not doing any kind of fund raising and we are using our existing and internal resources in order doing that. The increases in revenue in sales marketing and development will be some balance [ph] also with R&D.

We are not going to dramatically change let's say the balance internally, but if we are going to increase the investment that we are having in sales marketing and business development it will be slowly and it will be eventually with some kind of balance to the rest of the expenses that we are having that’s what we were doing by the way since they won, since August 15.

Last question I've is can you talk about how slow or quick the gas stations are installing the technology that you've and then how aggressive are your partners in pushing that technology onto the customers? Thank you.

Look I think that while I will say the following, I believe that we will continue to present double digit growth in our fuelling business also in '18 compared to '17 this is one thing. I'm saying that following the strong pipeline that we are having in this [Technical Difficulty] we definitely see more giants -- stepping into this market.

Again when you're actually evaluating who are actually our competitors its not someone that is doing exactly what OTI is doing in PetroSmart. We are actually competing with companies that are issuing the plastic cards for the fuelling industry and this is actually our major competition and of course are coming with arguments of efficiency, we are coming with arguments that the entire system is going forward and other good is that we are having in this system.

And this is actually misunderstanding in our industry is going slowing but I think that from the moment that the giants [indiscernible] and those guys realize that this is the direction and they realize that this is direction we are actually now that the growth in this industry.

Could you give us some color as to what's going on in India with the trial on the Easy Fuel?

Yes. We actually delivered India for the first time what we call the [indiscernible] is the fuelling tug that’s its self-installed and self-destruct will deliver more than 65,000 units like that in the end of '17 to our partner in India and so far more than six months, more than seven months since we delivered the entire 65,000 units its considered to be a very successful installation and it’s a little bit too early to say what is the consumer reaction to that but from the technical perspective this is considered a successful installation.

I believe that by the end of the year we will continue to evaluate and to analyse the data and hopefully before the end of the year we will have much better picture regarding the consumer over there.

And regarding the initial PO was for 10,000 units and will be filled according to the press release sometime in the third quarter with a 3000 units. Do you see any more units coming?

Absolutely I just returned from Japan, the week before last week and all in all we are now developing together with our partner billing system in Tokyo and strong pipeline that we are facing both of us together over there and I believe that we will continue to see growth in this market. As a reminder I have to say that when we got the LOI, the letter of intent for the 10,000 system it was from the beginning.

That’s correct and you feel that in less than two that’s not the issue.

That’s correct, but no but this is a sign for the quality and for the technology that we actually presented although but yes the answer is positive we continue to see growth in the Japanese market also in '19 and I believe also the year after.

And in previous calls you talked about cultural differences which were in Japan and Malaysia. Have you resolved most of those cultural issues for the global readers will be like quicker in the future or are you still -- cultural difference still a problem?

Sure. Can you hear me now?

Okay, on the cultural differences in Japan have they been resolved so that your reader will come in a more timely manner?

I'm not sure that its always related to the cultural issues that we, we definitely have you know differences in cultural approach and so on. But I believe that what the most important thing that is relevant for Japan is the fact that the needs and the requirements that we are getting since the beginning of the year compared for example to H2 or H1 '17, its increasing dramatically and we fully believe that eventually we will see the results meaning that we will present a hefty goal team from the Japanese market.

Do you have some really growth in Easy Fuel up over 20% or something like that? But the overall company growth is about 10%, what's holding you back?

I don’t think that -- I think that all in all when you're looking on the -- if you analyse by the way the results of Q1, Q2, so in Q1 we were having relatively weak quarter in the fuelling and then in Q2 we were having much better quarter. So if you analyse the entire revenue that we generated in the first six months it represents exactly 10% growth.

If you will ask me why mainly because the fuelling business is based on projects and its not based for example you know on our COGS business at this point of time. The majority of the revenue that we are generating is based on projects that we are investing in some of those projects in two and even in three years of hard work and that’s the reason that you still you see 10% growth year-over-year I'm saying about H1 to H1.

Thank you. So I would like to add that throughout the next few months we expect to remain active in our investor awareness activities.

If you're interested in setting up a meeting please contact our IR firm MZGroup. As a pioneer and leader in the cashless payment solution arena we strongly believe our technology will continue to bring in tremendous amount of value to our industry while resulting in predictable high margin recurring revenues for the company and great value for you our shareholders.

In conclusion we thank you for your continuing support. Thank you and have a good day.